WeWork Caught in Labor Dispute
After weeks of avoiding protesters, WeWork co-founder Adam Neumann tried to convince his antagonists that his company had taken the moral high ground in a labor dispute that left about 100 jobless.
By TIME OF DAY MEDIA on Publish Date September 10, 2015. Photo by Kirsten Luce for The New York Times. Watch in Times Video »Adam Neumann bounded through the downtown Manhattan headquarters of WeWork, beaming as he pointed out the amenities of the open floor plan.
Over in the communal area, entrepreneurs mingled. Here was the shared kitchen, with cold-brew coffee and organic snacks. How cool is that? Over there was the quiet room, with mood lighting and hammocks. Wasn’t it awesome? Mr. Neumann pulled out his iPhone and checked WeWork’s app, where members — as WeWork calls its customers — can find jobs and team up with one another on new socially responsible ventures. Talk about disrupting business as usual.
In just five years, Mr. Neumann and WeWork’s other co-founder, Miguel McKelvey, have built their start-up into an office-space rental empire, with 52 locations in 16 cities around the globe. An office utopia designed for millennials — at first mostly freelancers trying to escape their apartments, but now also small businesses and corporations trying to lure the creative class — WeWork was, until recently, valued at $5 billion. Then in June, it sought another round of financing, getting huge investments from Fidelity Management and others. Its new valuation: $10 billion.
Mr. Neumann grew up on a kibbutz in Israel; Mr. McKelvey grew up in a collective in Oregon. They frequently cite their origin stories in explaining their belief that office space should emphasize community and serendipitous connection — and that the company is a force for good. They call their customers the We Generation.
“If you understand that being part of something greater than yourself is meaningful,” Mr. Neumann said, “and if you’re not driven just by material goods, then you’re part of the We Generation.”
So Mr. Neumann seems more than a little perplexed to find himself defending WeWork against charges that it is a callous, anti-labor corporation, less concerned with people than profits.
WeWork’s headaches stem from a complicated dispute with a group of men and women who once cleaned WeWork locations. With its aspirations to be an office-rental paradise, it couldn’t have sticky floors by the free craft beer keg, or trash collecting under the Ping-Pong tables.
It needed cleaners — lots of them — to keep its locations tidy. Looking for help, it turned to contractors to provide cleaning services. In Boston and Washington, as well as New York, the contractor was Commercial Building Maintenance Corporation, or CBM, which provided hundreds of janitors to those locations.
But that routine decision came back to haunt WeWork. When the New York City cleaners — who made about $10 an hour and received no benefits or paid time off — tried to unionize in June, CBM terminated its contract with WeWork and eliminated the jobs. WeWork decided to hire its own in-house cleaning staff but will not hire all the former CBM workers, leaving about 100 people jobless.
The result has been a showdown between new economy and old. All summer, the cleaners protested outside WeWork offices around New York, blowing whistles and chanting: “WeWork, shame on you! WeWork, shame on you!”
On a humid night in late August, a few days before Mr. Neumann gave his office tour, the protesters were outside company headquarters on West 18th Street. After months of avoiding direct confrontation, Mr. Neumann decided to try to convince his antagonists that he was a good guy who had done nothing wrong.
At first he cited the letter of the law. “WeWork was not hiring any of you. It was all done through CBM,” Mr. Neumann pleaded. “They were your employers, not me.”
That didn’t work. The cleaners said they had worn WeWork T-shirts, gotten to know the company’s staff and customers, and believed WeWork had a responsibility to them.
Next, Mr. Neumann tried empathy. “When I was a little kid, me and all my family lived in a house the size of my daughter’s room,” he said.
The cleaners were not impressed.
Finally, Mr. Neumann explained that WeWork was now hiring its own cleaners, paying them $15 to $18 an hour, and offering health care along with equity in the company. “This company is going very far,” he said. “The stock, God willing, is very valuable.”
Mr. Neumann seemed to believe his logic and magnanimity would make the problem go away: If only the cleaners had all the facts, they wouldn’t be so upset. But to the now unemployed janitors who had toiled for low wages and with no benefits, all while wearing WeWork uniforms, the company’s wonderful new terms felt like a slap in the face.
When one protester reminded Mr. Neumann that his company was worth $10 billion, he waved the thought away, his hand swatting the air. “That has nothing to do with this,” he said, turning to the next question.
Perhaps they are separate issues for Mr. Neumann. But to many onlookers, it’s hard to understand why a company with so much money won’t help the unemployed men and women who once cleaned its floors.
Who’s the Boss?
WeWork may be a fast-growing darling of the so-called sharing economy, but it is also one that leases lots of conventional real estate — about two million square feet. And by simply doing business as usual and hiring a contractor to provide cleaning services, it inadvertently stumbled into a fight that exposes the paradoxes of today’s lopsided labor market.
In recent decades, outsourcing cheap labor for tasks like security, mail sorting and food services has become routine for American corporations.
“Many parts of what used to be integrated businesses are now handled through subcontracting,” said Jennifer Gordon, a professor at the Fordham University School of Law specializing in immigration and employment.
Subcontracting makes plenty of economic sense. Companies can keep the head count down and avoid health care and benefit obligations. Contractors can do what they do best — provide specialized services at competitive rates. But by striving to win assignments, contractors often pay employees as little as possible.
For workers, this dynamic can be maddening. Ivan Castelan began cleaning WeWork spaces three years ago. He started out tidying kitchen areas and keeping the coffee fresh; over time his responsibilities expanded to include managing inventory and placing orders for supplies. Yet when he wanted to negotiate a raise, Mr. Castelan was stymied at every turn.
“When I asked WeWork for more money, they told me to talk to CBM,” he said. “When I asked CBM for more money, CBM said WeWork had to approve the raise. It was frustrating.”
Such situations are typical in subcontracting situations. WeWork may not have been Mr. Castelan’s direct employer, but it was the one with the ability to improve conditions for him — and other cleaners. It could have paid CBM more and then insisted CBM pay its workers higher wages, or it could have hired a new contractor that paid better. CBM, meanwhile, had little incentive to push WeWork, a powerful client, to raise salaries.
“The law says CBM is the employer, but if you look at the reality of how wages are set, it’s the firms higher up the chain that really control what the wages will be,” Ms. Gordon said. “WeWork has all the power. It has the money, and it has the control.”
Companies, workers and contractors have been wrestling with these issues for decades. During the 1980s and 1990s, the Justice for Janitors movement fought to improve wages and benefits for cleaners after competition eroded their salaries and benefits. Today, fast-food workers — who most often work for franchisees — are campaigning for a new minimum wage of $15 an hour. And in a decision that could have far-reaching implications, the National Labor Relations Board ruled last month that more companies could be considered “joint employers” of workers not directly on their payroll.
But for now, a company like WeWork has no obligations to look out for the employees of a contractor like CBM. “Morally, I would argue that they absolutely have a responsibility,” Ms. Gordon said. “But legally it’s much more complicated.”
Idealism Meets Mops
Mr. Neumann is a tall, exuberant 36-year-old Israeli who wears his dark hair to his shoulders. He came to the United States in 2001, “chasing the American dream,” he told the protesters during their showdown in the street last month. “I came wanting to change the world.”
He founded a baby clothing company but walked away from it after his wife observed that he wasn’t passionate about apparel. Next, he started an eco-friendly co-working space in Brooklyn with his friend Mr. McKelvey and other investors. Wanting more control of the product, he sold his stake in that company and founded WeWork with Mr. McKelvey, a former store designer for American Apparel.
The official mission of WeWork is “to create a world where people work to make a life, not just a living.” And as a spokesman for the altruistic We Generation, Mr. Neumann is dismayed that the union is demonizing him. “We care about this topic so much,” he said.
The cleaners, however, say that Mr. Neumann passed up a critical opportunity to demonstrate his concern. When they began organizing this summer, CBM asked WeWork to change its contract in order to pay the cleaners higher wages and allow them to join a union — though a union of CBM’s choosing. But WeWork declined to renegotiate, saying the CBM proposal was “sketchy.” CBM terminated its contract with WeWork.
CBM did not respond to numerous emails and phone calls.
Mr. Neumann said CBM’s action only accelerated the inevitable: Even before the protests began, WeWork had been planning to make the cleaning jobs in-house.
CBM was hired years ago as WeWork was quickly growing throughout New York, its home base. “It was one of a thousand decisions we were making at the time,” Mr. Neumann said. “It was about who can supply us a service and what can we afford.”
But this year, Arthur Minson, who had been the chief financial officer of Time Warner Cable, joined WeWork as chief operating officer. Mr. Minson quickly soured on CBM and determined that WeWork should hire its own staff. “We were a five-star brand with one-star cleaning,” he said.
Though hiring in-house cleaners would fly in the face of decades of conventional business wisdom, Mr. Minson said it was a necessary move for WeWork. Janitors interact with WeWork members constantly and need to be steeped in its corporate culture. Mr. Minson also wanted to give cleaners expanded responsibilities, like preparing offices for new tenants and delivering food to conference rooms.
“I’m a big believer in in-sourcing member-facing functions,” Mr. Minson said. “If you want to build a powerful brand in the services industry, you have to.”
After CBM terminated its contract, WeWork began hiring about 100 so-called community service associates to clean its New York offices. It offers $15 to $18 an hour, as well as benefits, sick days and a small amount of stock. Over all, the cost per employee is about twice as much as what WeWork was paying CBM. Mr. Minson said WeWork would expand the model to other cities. (WeWork still uses CBM in Boston and Washington.)
As the new positions were filled, WeWork refrained from hiring CBM workers because of a no-hire clause in its contract. WeWork said that it asked CBM to waive that restriction, but that CBM initially declined. When CBM finally did waive it, WeWork had already hired many new cleaners, leaving few open jobs.
The local Service Employees International Union chapter, which has been working with the former WeWork cleaners, contends that WeWork intentionally avoided hiring former CBM workers so it could prevent pro-union cleaners from joining the company and trying to organize. The S.E.I.U. filed a charge with the National Labor Relations Board alleging as much, but the board has not yet taken any action. WeWork denies the claim.
In recent weeks, after CBM waived the no-hire clause, WeWork hired about 20 of the laid off cleaners. But it appears unlikely that all, or even the majority, will ever be part of the WeWork family.
Nathalie Torralba, who had cleaned in WeWork’s offices for 18 months, said she had interviewed for one of the new positions weeks ago but had not heard back. Mr. Castelan has also applied, but has not been hired.
“They decided to hire new employees and give them what we were asking for,” Mr. Castelan said. “That’s not fair.”
A $10 Billion Target
The very attributes that have made WeWork so successful have also exposed it to this bruising labor brawl. As Mr. Neumann is finding out, the We Generation cares about janitors, too.
Jane Barratt, who runs an investment platform called GoldBean and has worked out of a WeWork space in New York’s SoHo neighborhood for 18 months, canceled her membership after mounting frustrations with the company, including over what she said was poor customer service and the labor dispute. “The treatment of the cleaners was the last straw,” she said.
More than 500 WeWork members signed a petition demanding that the company hire the former CBM cleaners as community service associates. Julie Sygiel, the founder of an underwear company called Dear Kate that is operated from a WeWork space in New York, recently delivered the petition to Mr. Minson, accompanied by two former cleaners.
“I believe WeWork has a responsibility to commit to rehire all qualified former cleaners who have applied for a new position,” Ms. Sygiel said after the meeting.
Unlike many start-ups in the digital age, WeWork seems to be making money. The company would not disclose its financial performance. But according to internal documents obtained by The Information, a technology news website, WeWork had $75 million in revenue last year, with $4.2 million in profits.
By any conventional measure, those figures do not support a $10 billion valuation. Like other start-ups, including Uber and Airbnb, WeWork is part of what many critics are describing as a new technology bubble. Yet WeWork is anticipating huge growth as it expands rapidly and gains corporate clients renting hundreds of desks each. It forecasts nearly $1 billion in profit on sales of $3 billion by 2018, according to the documents.
The number that matters most to the cleaners who were fired, however, is not revenue or profit. It’s that $10 billion valuation. That number made WeWork’s behavior that much harder to understand. If any company can afford to pay janitors a living wage, they figured, it is WeWork.
“It was clear to everyone including the workers that this is a company that is doing very well,” said Rachel Cohen, an S.E.I.U. organizer. “Why would they be using a cleaning contractor that is paying substandard wages?”
Other fast-growing tech companies are encountering similar criticism as they grow. Uber, the on-demand car service, is appealing a ruling by the California Labor Commissioner’s Office that required the company to classify a driver not as an independent contractor but as an employee.
Facebook recently faced its own version of WeWork’s conundrum when the bus drivers who ferried its workers from San Francisco to Silicon Valley, and worked for a subcontractor, demanded better pay. Facebook responded by announcing that all employees of its major contractors would receive at least $15 an hour, paid vacation and sick time, and parental benefits.
Whether WeWork brings all cleaning jobs in house or continues to use contractors, its growing footprint means it will have to be more attuned to the people who clean and maintain those spaces.
Cristian Diaz, 25, moved to Queens from Colombia in 2012 and quickly began cleaning at WeWork spaces around the city. But despite long hours and no vacations, Mr. Diaz said his $10 hourly wage left him with almost nothing to send home to his parents in Medellín. “We were just getting by,” he said. He supported joining the union, hoping it would mean better pay and benefits.
Mr. Diaz, who has been out of work for a month, applied for a new job with WeWork, but has not been offered one.
The Last Word
On the sweltering night in August when Mr. Neumann squared off with the cleaners on West 18th Street, he called for calm after some heated exchanges, and delivered a soliloquy that would be the final word for the evening.
“There’s a saying, ‘God truly helps those who help themselves,’ ” he said. “I understand your heart. I know everybody here is trying to help. You keep pursuing a job at WeWork. If you’re the right fit, you will get a job, because we’re interested in the right people. We’re going to keep growing. But we’re very comfortable with our position. We will definitely not be blackmailed, pushed or aggressively moved into anything. That will not happen. Not in this country, because this is a great country where freedom comes first.”
“I feel you, I understand,” Mr. Neumann continued. “I do not think you have all the facts. I don’t think you know everything that happened, but I know life is tough that way. So I will keep doing my best to make the most difference I can — first in your lives and my employees’ lives, and in the world.”
With that, Mr. Neumann turned and walked into the office of his $10 billion start-up. It was as if he had been speaking in a foreign tongue. The front door had not shut when the chanting resumed: “WeWork, shame on you! WeWork, shame on you!”